An asset purchase agreement is, as it states, a contract between two or more parties, one party being a buyer and the other a seller of said assets. The asset purchase agreement consists of the terms and conditions between buyer and seller.
Contents hideThese conditions within the agreement can be of anything but typically follow price, payment methods, limitations, and exclusion or inclusion of certain assets.
There aren’t any limitations when purchasing assets via an asset purchase agreement. Assets aren’t limited to strictly physical equipment and machinery. Assets such as intellectual properties, licenses, and patents can be purchased and distributed to the buyer if the seller wishes.
While an asset purchase agreement should cover all assets, separate contracts are written up depending on certain types of assets. For example, stocks are an asset to a company, but they have separate purchase agreements. Land purchase agreements are also usually in their category, even though real estate and land are technically assets.
Stocks are considered an asset, but a stock represents a company’s share. These shares claim ownership of the company and all assets included within it.
While stocks sound like the best case for purchasing assets, they have disadvantages, such as taking on liabilities that you may not know and acquiring the majority of the company and operation. Stocks also come with limitations of forcing others to sell their company shares and give up operational control.
The difference between the stock and asset purchase agreement comes from that catch-all perspective. You may only want a particular IP from the business or a specific asset, depending on your goal. If this is the case, the most attractive option will be an asset purchase agreement.
Land prices vary depending on the land. Some concerns must be addressed, such as natural dangers, soil fertility, minerals, and location.
While it would be easy to include stock and land within an asset purchase agreement, it’s heavily advised not to do it. Land and stock have separate purchase agreements because of the documents, complexity, and regulations.
People ask why transferring business assets should be so formal and go through all this documentation. While, to an extent jumping through extra hoops is a bit of an annoyance, having a written purchase agreement ensures that every party successfully makes it through the transaction with minimal to no loss.
When dealing with a large amount of money or expensive assets, it’s nice to have some assurance that things will work out as a buyer or a seller. This process exists on a smaller level for consumers via guarantees, receipts, and warranties.
You can write your purchase agreement informally, but if you want it done right, it may be best to let your representatives do it for you or a lawyer if you have one.
Additionally, acquiring an asset purchase agreement via a template may be a good thing to do as it will list out each field you need to fill out and do the bulk of the work for you. This template will ease your mind when signing and drafting the agreement.
Whether you draft one or acquire an asset purchase agreement template, you’ll need to understand the fundamentals of the document.
Drafting an asset purchase agreement is a simple process if done informally. First, you’d want to list the assets you wish to acquire or sell. You would then write the amount you are willing to buy or sell these assets and the payment methods.
You would then want to list the parties involved and the rules of the agreement. The asset purchase agreement becomes significantly complex with additional assets purchased, more parties involved, legal fees, and documents.
If you want a more formal following, these are the parts you want to include in an asset purchase agreement.
Even if you don’t use the template, you can reference a free asset purchase agreement template to draft your own and adjust. Looking at an actual asset purchase agreement can also benefit you in understanding the details and sections involved.
Aboveis a very brief example of each part of the purchase agreement. It’s important to note that this is just a summary and isn’t a full detailed, in-depth guide. Recitals
The recitals are the first thing you’d want to ensure if you’re creating your asset purchase agreement. The recitals act as a general guide for the purchase agreement. In this case, it will outline the parties involved, the assets, and the intentions of each party in the assets sale contract.
Whether you use a template or have a lawyer draft you an entirely new asset purchase agreement depends on your situation. Smaller businesses may find using a template more effective, while corporate officials of larger companies will turn to legal counsel to handle these documents.
The great part about asset purchase agreement templates is that professionals draft them. Templates such as these are standardized to work with an abundance of situations.
Only a few things need to be changed, so if the situation is less complex, there is no reason not just to use a simple template and fill it out yourself or have someone who knows what they’re doing fill it out for you.
Is a handwritten asset purchase agreement legally binding?Generally, any contract between two parties is legally binding regardless of how informal the document is. However, a poorly written agreement can lead to loopholes.
It doesn’t hurt to understand what an asset purchase agreement generally looks like to help guide you through writing your own. Free asset purchase agreement templates also exist for you to copy and fill out.
What does an asset purchase agreement include?Asset purchase agreements include but are not subject to the following:
Asset purchase agreements also include details of payment, conditions for these payments, and the consequences if any party does not adhere to the asset purchase agreement.
Is an asset purchase agreement legally binding?Yes, an asset purchase agreement is legally binding. This agreement is legally binding because it acts as a contract between two or more parties.
Everything within the contract binds you to follow through with the agreements and regulations agreed upon by both parties. Legal counsel is thoughtful when drafting or securing an asset purchase agreement.
Can you back out of an asset purchase agreement?Usually, a contract, or in this case, an asset purchase agreement, must have a clause that allows parties to back out of the agreement. Typically, this agreement remains legally binding otherwise.
Since this is the case, choosing to neglect or back out of the contract subjects you to legal punishment for not adhering to your agreement. The seller may be entitled to keep their assets and money given to them by the buyer during their agreement.
